Federal Reserve

Weekly Jobless Claims Fall Again

The jobs market continues to show signs it is turning around as weekly claims fell again last week. Initial claims for unemployment dropped 12,000 to 367,000 according to the Labor Department. The week before saw claims revised slightly higher to 379,000 from 377,000. Jobless claims have held below 400,000 for 8 of the last 10 weeks, below a level typically used as a sign of an improving jobs market.

Economists were expecting a very slight drop to 375,000 last week. The four week moving average for jobless claims, which is used to smooth out volatility, fell to 375,750.

The jobs market has seen momentum in the past few months with the unemployment rate dropping to 8.5% in December. One thing to remember though is that when someone stops looking for a job because they have been unemployed for so long they are no longer counted.

The jobs market has a long way to go though as 23.7 million Americans are either unemployed or underemployed. Last week, the Federal Reserve acknowledged the improvement in the jobs market, but said the jobless rate is still too high. They will likely keep overnight lending rates near zero through at least 2014.

Productivity saw an increase, but was lower than expected. It increased at an annual rate of 0.7%, economists were expecting it to grow at 0.8%.

The Dow is trading flat right now despite the positive news from the jobs market. The Dow is up 8 points right now, the Nasdaq is up 13 points and the S&P 500 is up 3 points.

Fed Set To Keep Interest Rates Near Zero For At Least Two Years

The Federal Reserve looks like it will announce no new monetary changes at their meeting today. It is expected to release forecasts that show interest rates will remain near zero for at least the next two years.

With the recent improvement in the U.S. economy, the Federal Reserve will more than likely not announce any additional bond purchases. However, they will leave the option open in case the European debt crisis gets worse and has the possibility of affecting the U.S. economy.

The Federal Reserve has continued to say since mid last year that interest rates will remain extremely low through at least the middle of next year.

The Fed is expected to release its statement outlining its views on the economy and monetary policy shortly after lunch. Rate projections and quarterly economic forecasts will be released soon after at 2pm.

Many analysts believe the U.S. economic recovery will be affected as Europe’s economy begins to struggle even more. This could potentially force the Fed into another bond buying spree, and will more than likely focus on mortgage debt.

We’ll know more once the Fed comes out with their statement. The markets are looking better than they did right now as most investors await word on what the Fed will say. The Dow is currently down 49 points, the Nasdaq is up 16 points and the S&P is down 2 points.

Consumers Shaking Off Recession Blues

The U.S. economy ended the year strong after nearly slipping into another recession in the spring. The Federal Reserve painted a pretty picture for the economy in a survey it released earlier today. Factories were making more goods, consumers were spending their hard earned money and Americans traveled even more.

The Fed noted that all but one of its 12 banking districts saw growth from late November into the new year. Richmond was the only district that didn’t see a marked improvement. The Fed did note that not all sectors of the economy were strong and pointed to the fledgling housing sector, saying it was still weak.

The auto industry showed good strength last year. Auto sales in Atlanta for instance were the best they’ve seen in more than two years. Tourism also increased with New York, Boston, Atlanta and Richmond also seeing an increase in tourism from the previous year. Businesses in the Northeast are expecting double digit growth in hotel revenue this year.

U.S. manufacturing also saw an increase in the latter part of the year after a weak spring and summer following the devastating earthquake in Japan. The Fed’s report said industries specializing in making heavy equipment and steel did well leading to a boost in energy, farming and auto manufacturing sectors.

Most economists have predicted that the economy grew at an annual rate of 3% for the last 3 months of 2011.

The state of the economic recovery remains fragile though as any setbacks in Europe could have wide ranging impacts closer to home. Consumers could also reign back in spending if their wages continue to not grow.

The Fed’s next meeting will be on Jan. 24 and Jan. 25 and as always investors and economists will be watching it very closely.

Consumer Price Index Flat In November

The Consumer Price Index (CPI) was unchanged in November according to the Labor Department. Consumers paid less for cars and gasoline last month and the 12-month inflation reading fell for the second straight month. This gives the Federal Reserve a little more room to help the weak economy if it chooses to do so.

This is “an inflation report that leaves the Fed ample cover for any additional monetary policy accommodation they may see warranted in the New Year,” said Ian Lyngen, a bond strategist at CRT Capital Group in Stamford, Connecticut.

Economists were expecting a slight increase of 0.1% in the CPI after it fell 0.1% in October. For the 12 month period ending in November, prices rose 3.4%. This is down from the three year high of 3.9% back in September and shows that the spike in inflation is subsiding a little bit. Many people see inflation going down even more in the next few months and could convince the Federal Reserve to take more action to lower the nation’s unemployment rate.

The next Fed meeting is in late January and economists believe it is more likely for the Fed enact more measures to help the economy grow.

In November, food prices rose 0.1%. A welcome bit of news came from gasoline prices which fell 2.4%. If you discount food and oil, prices went up 0.2% in November.

Peter Schiff On U.S. Led Global Bailout Of Banks

The market saw a massive rally today due to the coordinated action by central banks all over the world. Central banks from the U.S., Canada, Britain, Japan and Switzerland all jointly lowered borrowing rates so European banks have easier access to cash.

Peter Schiff, global strategist of Euro Pacific Capital Inc., gave his take of today’s actions. In the video below Peter Schiff says, “Well I think the world’s central banks rung a pretty loud bell today to buy precious metals, you had the Federal Reserve along with many central banks around the world reducing their rates by 50 basis points that they charge for dollar swaps.” This allows banks access to cheap dollars.

Schiff maintains the cheap access to dollars will in effect lower the value of the dollar index against other currencies. Schiff believes that everyone who has been waiting to buy precious metals should do so now. He’s also bullish on platinum which is trading at a discount to current gold prices.

Schiff also believes that the bailout was for U.S. banks as well and points to the S&P downgrades Tuesday night of more than 20 major financial institutions.

“This is not about economic growth its about propping up insolvent financial institutions by creating inflation.” Schiff added.

Schiff also talks about the recent credit easing in China after nearly 3 years of credit tightening to combat inflation. You can watch the full video below.

Central Banks To The Rescue..Can They Save Christmas?

The Federal Reserve, European Central Bank and four other central banks unveiled a coordinated action to provide liquidity to “ease strains in financial markets.” The central banks agreed to lower the pricing on existing so-called dollar liquidity swap arrangements by 50 basis points. As a contingency measure, they also plan on establishing “bilateral liquidity swap arrangements.”

“The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity,” the U.S. Federal Reserve said in a statement.

U.S. stock futures and European stock indexes jumped on the news, and the euro rallied against the dollar.

The Fed, the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank all agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points. That takes the new rate down to the U.S. dollar overnight index swap, or OIS, rate plus 50 basis points, the Fed said.

The pricing will be applied to all operations conducted from Dec. 5. The authorization of these swap arrangements has been extended to Feb. 1, 2013.

The central banks have also agreed to establish temporary bilateral liquidity swap arrangements so that liquidity can be provided in each jurisdiction in any of their currencies should market conditions so warrant, according to the Fed. “At present, there is no need to offer liquidity in non-domestic currencies other than the U.S. dollar, but the central banks judge it prudent to make the necessary arrangements so that liquidity support operations could be put into place quickly should the need arise,” the Fed said.

OECD: Euro Zone in Recession, U.S. Could Follow

The Euro Zone is already in a mild recession and the U.S. could follow suit according the OECD who sharply cut forecasts on Monday. The threat of an even more severe downturn will continue if Europe can not get their debt under control and if U.S politicians fail to come up with a spending-reduction plan they all agree on.

The ECB is the only institution left that can hold the euro zone together if European leaders fail to take more decisive action in resolving their issue. The OECD believes in the U.S. however, the Federal Reserve has little else it can do. The slow down in Europe affects the entire global economy including big emerging economies such as China. The OECD cut its twice a year Economic Outlook to 3.4% in 2012, down from 3.8% this year.

The OECD added that Europe is has entered a recession and has seen growth this year of only 0.2%, well short of what it fore-casted in May of 2%.

The euro zone recovery continues to look in doubt following Germany’s difficulties with their bond auctions last week. “What we see now is contagion rising and hitting probably Germany as well,” OECD chief economist Pier Carlo Padoan told Reuters in an interview. “So the first thing, the absolute priority, is to stop that and in the immediate the only actor that can do that is the ECB,” he added.

The main answer to this crisis seems to be the ECB committing to creating a cap on government bond yields.

In the U.S., the Federal Reserve can’t do much in the event of a major economic downturn. It’s already boosted liquidity in the financial system. Padoan said the failure of Congress to pass a deficit reduction plan could cause the U.S. to fall into another recession. “The resulting fiscal tightening, which would come automatically, would in our view likely generate a recession in the United States,” Padoan said.

If a plan is passed, the U.S. economy will grow 1.7% in 2011 and 2% in 2012.

Markets Rebound and Temple-Inland and FriendFinder Network Lead the Way

After several days of steady losses the markets are trying to recover this morning. The Dow is up 68 points, the Nasdaq is up 6 points and the S&P 500 is up 5 points. Oil is down $.64 a barrel dropping below $99 ahead of Wednesday’s OPEC Meeting. Lets take a look at the factors responsible for the rise in the markets this morning.

One of the big driving forces behind the market to is the anticipation behind Federal Reserve Chairman Ben Bernanke’s speech this afternoon. The Fed has stated it is willing to wind down its $600 million bond-buying program this month. There are many concerns over the poor economic reports that have been issued in recent weeks leading some to speculate that the bond-buying program may get extended. At least some members of the Fed feel that the bond-buying program should not continue. Dallas Federal reserve president Richard Fisher thinks we are on the cusp of turning the corner in the economy stating “”We are lean and mean, our balance sheets are in great shape in America–There is a lot of liquidity out there. I am eager to see the trigger — I don’t know what it is — for that money to be spent putting Americans back to work.”

Temple-Inland Inc. (NYSE:TIN) shares have jumped up this morning climbing 40% to $29.62 with an intraday high $29.97. TIN has implemented it’s “Poison Pill” plan essentially trying to prevent a hostile takeover bid from its larger rival International Paper (NYSE:IP). The plan gives share holders the opportunity to buy new shares that will dilute the value of existing stock if a hostile takeover entity acquires 10% of its shares. The bid by IP works out to $30.60 per share, but Temple-Inland stated the offer was too low. The $3.3 billion takeover attempt represented a 45% premium over TIN’s Monday afternoon closing price.

FriendFinder Networks Inc. (Nasdaq:FFN) shares are up 13% this morning to $5.67 per share with an intraday high of $6.10. Volume has exceeding 1.8 million shares today as FFN released its 1Q financial results. Income from operations increased 52% to 19.7 million. Net loss decreased this quarter to $.27 from $.60 per share in the 1Q last year. FriendFinder also repaid $65 million in debt since December 31, 2010 and completed a 5 million share public offering on May 11.

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